Ernesto Pastén

Pricing under Distress

Abstract: When uncertainty increases it creates two confounding effects: a realization effect and an anticipation effect. These two effects may have opposing results on current behavior. By using a quasi natural experiment focusing on the pricing behavior of supermarkets during the 2019 riots in Chile we identify the consequences of the anticipation effect: during the 31-day period following the riots supermarkets reduce the frequency of price changes by about 50% and conditional on a price change, the absolute magnitude of price changes is about 50% larger. We attribute these changes to the arrival of news about a future increase in idiosyncratic demand dispersion. We develop a quantitative menu cost model and calibrate it using Chilean product-level data. Only news about future demand dispersion can deliver simultaneously less frequent and conditionally larger price changes. The effectiveness of monetary policy interventions crucially depends on the timing of the intervention relative to the arrival of the news and whether or not the change materializes. In particular, while the realization of uncertainty decreases the effectiveness of monetary policy, monetary policy is more effective when the news about future volatility arrives.

Datos del Seminario

Fecha de inicio:
10 de Junio, 2022 | 12:00 hrs.

Fecha de término
10 de Junio, 2022 | 13:00 hrs.